OECD Oil Demand in a Recovery

Ok, let's go about this differently - looking at correlations with employment (as yesterday and the day before) is not getting me anywhere. Let's do something simpler. In a non-oil-shock but post-financial-crisis world, what is a reasonable range of estimates for the growth in OECD oil consumption during a recovery?

To estimate this, we need to estimate two things - what will the growth of GDP be? And how will oil efficiency evolve - the ratio of GDP to oil consumption?


On GDP growth, I suggest we take a range on the low side of 1.5%, which corresponds to Japan in the 1990s following the collapse of the real estate bubble there, and the "lost decade" of deflationary conditions. On the high side, we could take the rate of growth during the last two recoveries for the OECD as a whole. This next graph shows OECD GDP and growth rate:

In the recovery 1993-2000, the OECD grew at a real rate of 3.2%. In the years 2001-2007, the average rate was 2.6%. So in round numbers, let's take the top rate of reasonable growth in the recovery from the 2008 recession as 3%.

So that's my range of reasonable estimates for OECD growth over the next five years - 1.5% to 3%.

Now, I looked at the oil efficiency of various individual OECD countries here. However, I didn't present the oil efficiency of the OECD as a whole, so here it is (based on the OECD GDP numbers referenced above and BP oil consumption numbers).

The average growth rate in this from 1980-2008 was 2.1%. Let's suppose, in a non-oil-shock world, that continues at the same average rate over the next five years.

So the net increase in OECD oil demand ranges from -0.6% on the downside of Japan 1990s style stagnation, to 0.9% on the upside of a healthy recovery and continued historical trend growth in oil efficiency. In absolute terms, that corresponds to a range of losing about 300 thousand barrels/day of OECD demand each year, to gaining about 450 thousand barrels per day (in round numbers).

And that, of course, needs to be added to the million barrels per day each year, that we can probably expect from the rest of the world's demand.